[inspiration for the AFL-CIO?]full article at: <http://www.iht.com/articles/4532.html> Unions Force Schroeder to Yield on Pension Cuts John Schmid International Herald Tribune Saturday, December 16, 2000 German Leader's Economic Plan Dealt Setback FRANKFURT Unions forced the government Friday to scrap a key plank in its overhaul of the state retirement system, greatly diluting Chancellor Gerhard Schroeder's most crucial economic modernization project. . Business leaders favor the politically sensitive welfare legislation, which they deem crucial to job creation and future investment. Their growing displeasure with the pace of change and with mounting signs of a slowing economy was reflected in a survey of business confidence released Friday. The survey showed that confidence fell for a sixth straight month in November, in the wake of rising oil prices and higher interest rates. . The index, compiled by the respected Munich-based research institute Ifo and based on a survey of 6,000 private sector executives, fell to 97 points from 97.2 in October, reaching a new low for the year. . Last summer, the chancellor pushed a bold tax plan past the opposition, and the government exuded confidence that it could repeat the victory by dismantling parts of the state's pension program and cutting benefits to the elderly. In the process, Mr. Schroeder struck up a warm relationship with Germany's corporate giants and made plans to run for re-election in two years as an economic and social modernizer. . But on the issue of retirement benefits, leftist politicians, unions and social activists have stood firm in well organized opposition. . On Friday, Mr. Schroeder's labor minister, Walter Riester, accepted key union demands after high-level talks in the center-left coalition. . The latest changes will minimize sacrifices by retirees by leaving monthly payouts little changed over the coming years. . "Today we are really facing the danger that we will get no reform of old age insurance or completely insufficient reform," Dieter Hundt, president of the Association of German Employers, told German radio. . Under the current program, which is considered generous among industrial economies, the state pays retired Germans an average of 70 percent of their last paycheck. . Those checks have comforted generations of older Germans, but the sums have become unmanageable since the social safety net was stretched over formerly Communist East Germany. . The pension system, which currently avoids losses only by increasing the taxpayer burden, has fanned unemployment by raising the cost of paying German workers, economists say. By some counts, Germany has the highest labor costs in the world. The expensive pay as-you-go pension budget has driven jobs and investment out of the Rhineland and into nations with cheaper labor. . The government's pension payments are the most costly part of the federal budget, consuming a quarter of all federal spending. That figure will rise to a full third of the Berlin budget by 2004. . The system runs up losses in excess of 100 billion Deutsche marks ($45.45 billion) each year, losses made up by pulling funds from elsewhere in the budget, said Michael Wolgast, senior economist in Frankfurt at Deutsche Bank AG. "Now the danger is that even this will be more diluted," Mr. Wolgast said. "This is what I see as the major danger. The system is in deep financial trouble now. For the unions, this is just a Pyrrhic victory because it only delays the pain until later, and this will keep going, and one day the whole system will collapse." . Mr. Riester originally wanted to cut average pension payouts to 64 percent of wages from 70 percent in gradual steps over the next 30 years, which itself was the result of compromise with the unions. . Under the steps announced on Friday, the reductions will be so minimal that they will apply only to 67 percent of wages by 2030. That is exactly the level demanded by the German Federation of Labor. . In a second concession, the government dropped a mechanism that would have meant even deeper cuts for anyone who is retiring after 2011 on the assumption that they would have had enough time to build up a private pension. . Franz Ruland, director of the German Association of Pensions Insurers, said the provision violated rights to equal treatment because it disproportionately squeezed a single, younger generation.
